The significant market sell off yesterday in the US and world stock markets lead to front page headlines in the newspapers and other media this morning so we thought we’d share our views.

Even though the “news” is saying that the last two days is about the U.S. economy, it seems fairly clear to us that the real issue continues to be Europe. On balance, the economic news that has come out this week has been mildly positive, jobless claims down, leading economic indicators improving and the IMF saying the global real GDP growth rate is likely to be 4%. So why the market move?

Even though the incremental economic data for this week is mildly positive what it points out is that the economy is weak and vulnerable. Did anyone really not know this before the Fed telling us that yesterday?

We think the biggest factor that the market is dealing with is Europe and how the crises will eventually be resolved, one way or another overlaid by concerns about the ability of politicians in this country and Europe to come to some agreement on the handling of the economic situation.

The reality is that the global economy is fragile. The uncertainty of the Euro endgame creates the very realistic possibility that if it ends ugly, or if the uncertainty is prolonged or heightened indefinitely, the economy may be driven into recession because of a crisis in Europe or sentiment.

This is still not our expectation but because politicians are involved, it can’t be dismissed. It’s important to remember that extreme volatility like this is going to continue to happen until the underlying problems are solved. Day to day, the market is looking at every bit of news – from fundamental economic data to political posturing, from the significant to the trivial – and trying to make sense of it. And, frankly, we believe that often the market is over-reacting.

Remember that your long-term investment strategy is rooted in the expectation that in volatile times discipline, rather than emotion, drives the decisions we make. This is easier said than done in volatile times, that it is why it matters most in times like these.

A final reminder, your investments with us are not all in the stock market. There is a significant portion in quality shorter maturity bond mutual funds as well as a bit in commodities and other funds that don’t normally act in tandem with the stock market. We believe that stocks are cheap (certainly cheaper than they were in the spring) and our rebalancing strategy will have us at period now that may look like a good buying opportunity.

To use a driving metaphor, keep both hands on the steering wheel, look to the horizon and keep moving forward.